Canada Income Refunds Tax
When tax season rolls around, millions of Americans wait in anticipation of their annual income tax refund. If you owe debt to a collection agency, however, debt collectors will go to great lengths to ensure that you apply your tax refund to your unpaid debt. In some circumstances, debt collectors can even seize your IRS refund from you involuntarily.
Tax Refund Offset
A tax refund offset takes place when, rather than directing your annual refund to you, the IRS sends your refund to your creditor. Tax refund offsets are not available to private creditors. Thus, no matter what most debt collectors tell you, in most cases a collection agency cannot appeal to the IRS for a tax refund offset simply because you owe a debt in collections.
The exception to this rule occurs if the debt collector in question is working to recover an unpaid debt you owe to the government. The U.S. Department of Education, for example, hires private collection agencies to collect defaulted federal student loans. Even in these cases, the federal government, rather than the collection agency, is the one that actually garnishes your tax refund.
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